Tax enforcement in Malta : a study

Abstract

PURPOSE: This study analyses the current tax enforcement system in Malta. In particular, it focuses specifically on the various factors which influence tax enforcement in the local scenario. Moreover, this study extends its evaluation to assess the process of local tax enforcement and its effectiveness. Furthermore, this study seeks to recommend any improvements in relation to tax enforcement. DESIGN: The objectives of this study have been satisfied through the use of openended semi-structured interviews with CFR members, tax practitioners, and SMEs. The participants’ responses have been compared to the academics’ interpretations found in the literature review. FINDINGS: This study established various factors which influence local tax enforcement thereby limiting the ability of CFR to undertake its work effectively. It further identified that a lack of knowledge of tax enforcement exists among various SMEs, which makes it difficult for tax enforcement to ultimately achieve its aim. It is clear that many SMEs do not have any experience within tax enforcement, which further creates the need for enhanced provision of information in this area. Moreover, the findings show that the processes of tax enforcement have potential to be effective and act as a good deterrent, but since a few are not aware of them, tax enforcement is deemed to be ineffective. CONCLUSIONS: The study concludes that the current tax enforcement system is ineffective and needs a reform. Such reform is desirable due to the number of deficiencies found in the current set-up which expose regulatory agencies to several risks. By reforming tax enforcement, the risks of potential abuse and unethical behaviour by taxpayers should be reduced. Furthermore, CFR needs to widen its knowledge and understanding of innovative businesses to ensure tax compliance throughout. IMPLICATIONS: The study aims to act as a guide to tax authorities to try and reduce the level of non-compliance in Malta by enhancing their enforcement. Preferably, a sense of trust must be built between taxpayers and tax authorities to create a system which is ideal for both parties.